How subsidy removal will revive domestic refining, usher in gas as cheaper alternative

• Published date: 12 January 2023
• Publication title: Nigeria - The Nation

Ahead of the federal government's plan to embrace a fully deregulated petroleum industry, especially the phasing out of Premium Motor Spirit (petrol) subsidy support, operators, regulators and other stakeholders are bracing up for the massive change the new policy will usher in: gradually adjusting to the new price regime, anticipating domestic refining, and eyeing gas as a cleaner and cheaper alternative. JOHN OFIKHENUA reports.

With some months to the full deregulation of the petroleum sector, stakeholders in the industry are already upbeat that things will change significantly. One of the expectations, stakeholders enthused, is that the new policy direction will certainly usher in some level of independence and local content participation.

But exactly what difference would the deregulation bring to bear in the energy business? It presupposes an industry that is simply at the mercy of demand and supply. Thus, there will be the primacy of price mechanism over the perennial government regulation. It means that the Petroleum Industry Act (PIA), which was given birth to in August 2021, will now be the instrument driving both upstream and downstream operators and regulators. This comes with a lot of implications - both positive and otherwise.

From the downstream perspective, there has been a countdown to the 'doomsday' of removal of the Petroleum Support Scheme (otherwise known as petrol subsidy). There has been investment apathy for the refining and importation of the Premium Motor Spirit (petrol) because of its subsidy. Chiefly among the excuses is that with the subsidy in place, there cannot be a cost reflective pump price that should incentivise the investors.

A new petrol market, however, now stares the stakeholders in the face. This is so because the 18 months for which President Muhammadu Buhari suspended the implementation of the PIA shall soon elapse. It would be recalled that on 22nd of January 2022, the President halted the implementation of the law for 18 months, indicating that by mid-2023, the enforcement will take off. Besides, the Minister of Finance, Zainab Ahmed, has explicitly repeated it that the government will wind down its payment of the subsidy mid this year. It indicates the end of the respite that the populace enjoys from the government intervention. Its negative impact is what the citizenry will now learn to cope with.

For subsidy to go, the government requires the political will to say enough is enough, having postponed the doomsday for several years. A reliable source from the Ministry of Petroleum Resources, who dropped this hint, noted that no government would take the risk of removing subsidy in election year. The source, who preferred to be anonymous because he was not authorised to speak on the topic, said full deregulation is already in progress with different marketers selling petrol at their own prices across the country. He added that since the government can no longer bear the burden of subsidy, upon its removal in July, consumers must pay for the actual pump price if they must fuel their vehicles and equipment.

The source said: 'From what you are...